The Role of a Currency Board

A currency board is a monetary system where a country's currency is backed entirely by a foreign currency held in reserve. This setup ensures that the local currency's value remains stable because it can be exchanged for the foreign currency at a fixed rate. By committing to this peg, a currency board helps control inflation and build monetary stability. Essentially, it's like having a guaranteed exchange rate backed by tangible foreign currency holdings, reducing the risk of sudden devaluations and promoting confidence in the country's economy.